UPDATE 1-US state regulators want high-frequency trading probe

Tue Mar 5, 2013 5:54pm GMT

(Adds comments from NASAA president)

By Suzanne Barlyn

March 5 (Reuters) - U.S. state securities regulators urged Congress on Tuesday to investigate the use of powerful computers to trade rapidly large volumes of securities.

The practice, known as high-frequency trading (HFT), can put retail investors at a disadvantage since they generally do not have access to the same information and often buy and sell at less favorable prices, according to the North American Securities Administrators Association (NASAA).

NASAA, a Washington-based organization of state securities regulators, made its appeal during a news conference at the National Press Club in the U.S. capital.

"High-frequency trading clearly undermines retail investor confidence in the market," said NASAA President Heath Abshure, who is also the Arkansas securities commissioner. The group wants Congress to establish a committee to determine who uses HFT, their activities and its overall impact on financial markets, he told Reuters in a telephone interview.

The HFT appeal is part of NASAA's legislative agenda for this year, which also includes calls for bolstering funding to the U.S. Securities and Exchange Commission by collecting examination fees for advisers it oversees.

The group also wants Congress to strengthen investor protections it says were weakened by the JOBS Act, a law intended to make raising capital easier for small businesses. NASAA is concerned, among other things, about an SEC plan, prompted by the law, that would allow companies to broadly advertise their private securities offerings. Congress should issue guidelines about what types of advertisements would be reasonable, Abshure said.

It should also develop "some real guidance" for companies about verifying whether investors meet certain thresholds required to purchase privately issued securities, Abshure said. That could include reviewing paystubs and other financial documents.

NASAA called for legislation that would empower state regulators to curb mandatory agreements between registered investment advisers and clients that require the arbitration of potential legal disputes instead of going to court.

Those agreements are becoming more common among investment advisers and clash with their ethical responsibilities to act in the best interests of clients, NASAA said.

The measures overall aim to help retail investors and businesses recover from a difficult economy, Abshure said. (Reporting by Suzanne Barlyn in New York; Editing by Chelsea Emery, Dale Hudson and Andre Grenon)

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